BASD debt load could be diminished

The Bethlehem Area School District's debt load could lessen, but the future of the district's finances remains murky because of a risky financing package.

Longtime district business manager Stanley J. Majewski Jr., who is retiring, told the school board's Finance Committee on Tuesday the cumulative deficit he projected at $8.1 million as early as May would be about $4 million less.

His announcement came after more than a dozen parents and taxpayers in a crowd of 110 pleaded with the board to restore funding for elementary school reading specialists and guidance counselors and preschool transportation. Board members as well as Superintendent Joseph Lewis said there is no new money to fund any of the programs and services that were cut.

Majewski attributed the debt load's drop to $704,536 in decreased debt costs as the market has changed, curtailed spending across the district and higher-than-anticipated tax revenue.

''This is good news, but we are not out of the woods yet,'' said board President Loretta Leeson.

Majewski agreed.

Earlier, the board unanimously approved his retirement effective Feb. 8. But the vote did not include a separation agreement, which could be finalized later.

Majewski helped lead the district into variable-rate debt tied to derivative financing, known as ''swaps,'' that helped trigger a budget crisis when the housing bubble began bursting in 2007 and the global recession followed last year. Swaps are contracts with investment banks that bet on interest rate changes.

The vote on his retirement came without comment after parents and taxpayers asked the board to restore funding for cut programs and services.

Board members made cuts totaling $2.8 million last month as they and the administration began to fear that the district would not receive all of its projected state funds when Gov. Ed Rendell and the Legislature reach a budget.

Joe Parrish said the board's decision to cut reading specialists has caused him to lose faith in the system that educates his two children at Asa Packer Elementary School.

He said all students, regardless of family background, can have reading difficulty and he is worried his daughter won't get the help she needs.

Trinity Bradley of Bethlehem said she has had to rely on neighbors to pick up her son at the SPARK preschool program since busing was eliminated. Now she may have to withdraw her son from the school; her neighbors don't want to help because traffic backs up for nearly half an hour during dismissal time at the Linden Street building.

If Parrish, Bradley and others had stayed for a Finance Committee meeting, they would have heard how precarious the district's budget future is. The district's debt portfolio is laden with too much variable rate debt tied to swaps the district undertook between 2003 and 2007 to rebuild and renovate schools.

Board members undertook the swaps on the advice of Majewski, Lewis and the district's then-financial consultants on the premise that the swaps would save the district money.

It hasn't always worked as planned. The swaps doubled the risk, and that risk reared its head after the global financial meltdown. Now the district has to shed at least one of the remaining seven swaps, which as of the end of last month had a total value of about negative $24.4 million, according to the district's new financial adviser, Scott Shearer of Public Financial Management in Harrisburg.

That is far less than the all-time high negative value of $65 million, which was estimated in the heat of the credit crisis last fall.

Shearer said that as of Aug. 31 three of the district's seven swaps had a positive market value. If the board terminated them, the district could get $811,444 after fees are paid to consultants, lawyers and the investment banks. The three swaps have been working in the district's favor, resulting in $346,652 in savings on borrowing costs between July 2 and Aug. 31, he said.

Board member Michele Cann likened the swaps to a gambling trip to the Sands Casino Resort Bethlehem. If she's winning at a slot machine now, she can't assume she'll continue to win.

Board member Gene McKeon said the savings on the working swaps can be ''intoxicating, addictive.'' But he said the board needed to remember that the working swaps were only working to subsidize the greater negative risk of the underlying bonds and swaps.

Shearer agreed with both of them. He said it may take up to five years to restructure the debt to lessen the risk. But he said the board needs to terminate a positive swap, tied to a $55 million 2005 bond, by the end of the year because the bank that is backing the swap is terminating its contract.

The latest refinancing plan calls for the board to terminate the swap and issue two new bonds, a $35 million fixed-rate bond and a $35 million variable-rate bond.